Malloy: Deal with Amazon wins taxes, jobs

Updated 10:24 am, Tuesday, February 5, 2013

Photo: Scott Sady, FRE

Image 1of/4

Caption

Close

Image 1 of 4

FILE - In this Monday, Dec., 1, 2008, file photo, an Amazon.com employee grabs boxes off the conveyor belt to load in a truck at their Fernley, Nev., warehouse. Cyber Monday, coined in 2005 by a shopping trade group that noticed a spike in online sales on the Monday after Thanksgiving when people returned to their work computers, is the next in a line of days that stores are counting on to jumpstart the holiday shopping season. This year it is expected to be the biggest online shopping day of the year for the third year in a row. (AP Photo/Scott Sady)

FILE - In this Monday, Dec., 1, 2008, file photo, an Amazon.com employee grabs boxes off the conveyor belt to load in a truck at their Fernley, Nev., warehouse. Cyber Monday, coined in 2005 by a shopping trade

FILE - In this Nov. 11, 2010 file photo, Humberto Manzano, Jr., delivers an arriving pallet of goods at an Amazon.com fulfillment center in Phoenix. Products are flying off the shelves at Amazon warehouses across the county as Californians prepare to start paying sales taxes on online purchases. The change, which takes effect Saturday, Sept. 15, 2012, will pave the way for the e-commerce giant to open warehouses in California and offer same-day shipping to customers. (AP Photo/Ross D. Franklin, file)

FILE - In this Nov. 11, 2010 file photo, Humberto Manzano, Jr., delivers an arriving pallet of goods at an Amazon.com fulfillment center in Phoenix. Products are flying off the shelves at Amazon warehouses

FILE - In this Nov. 11, 2010 file photo, Katherine Braun sorts packages toward the right shipping area at an Amazon.com fulfillment center in Goodyear, Ariz. Products are flying off the shelves at Amazon warehouses across the county as Californians prepare to start paying sales taxes on online purchases. The change, which takes effect Saturday, Sept. 15, 2012, will pave the way for the e-commerce giant to open warehouses in California and offer same-day shipping to customers. (AP Photo/Ross D. Franklin, file)

FILE - In this Nov. 11, 2010 file photo, Katherine Braun sorts packages toward the right shipping area at an Amazon.com fulfillment center in Goodyear, Ariz. Products are flying off the shelves at Amazon

FILE - In this Nov. 11, 2010 file photo, Ricardo Sandoval places packages in the right shipping boxes at an Amazon.com fulfillment center, in Phoenix. Products are flying off the shelves at Amazon warehouses across the county as Californians prepare to start paying sales taxes on online purchases. The change, which takes effect Saturday, Sept. 15, 2012, will pave the way for the e-commerce giant to open warehouses in California and offer same-day shipping to customers. (AP Photo/Ross D. Franklin, file)

FILE - In this Nov. 11, 2010 file photo, Ricardo Sandoval places packages in the right shipping boxes at an Amazon.com fulfillment center, in Phoenix. Products are flying off the shelves at Amazon warehouses

It's the tip of the iceberg in sales-tax revenue that state consumers are supposed to declare on all their Internet purchases, but which the vast majority fail to declare.

In a deal that means at least $15 million a year in new tax revenue for the state, Gov. Dannel P. Malloy on Monday said that over the next two years, Amazon will also build a $50 million distribution facility in the state and create 300 new jobs with no state incentives.

"I want to stress that I continue to believe that this issue of tax fairness and compliance needs to be addressed on a federal basis," Malloy said, adding that Amazon hasn't chosen a site yet.

Malloy is planning on $8 million in new revenue in the budget that starts July 1 and another $15 million in the full fiscal year that starts July 1, 2014.

News Channel

But to get a larger tax piece of the state's multi-billion-dollar Internet sales, Malloy said it will most likely be up to Congress.

He cited a 2011 state law requiring online retailers who have facilities in the state to collect and transfer sales taxes to the Department of Revenue Services.

"They're not really telling us enough to get our teeth into what's going on," he said, adding that smaller online retailers will most likely continue to not collect Connecticut taxes and retain their edge with consumers.

"I am sure that the bricks-and-mortar operations will be happy with Malloy because of this," Cadden said, agreeing that it will be up to Congress to establish a national system for states to take a tax from consumers.

If Amazon does hire 300 in the state for the new distribution facility, it means the company is taking steps away from so-called megacenters, to smaller distribution operations, Cadden said.

More Information

Amazon dealat a glanceHere are some highlights from the agreement between Amazon and Gov. Dannel P. Malloy:It will take effect Nov. 1 and may generate up to $8 million in new taxes in the state budget that starts July 1.It will create about $15 million a year when fully enacted in the 2014-15 budget.It will give brick-and-mortar retailers a chance to regain some sales.It will force Connecticut consumers to pay sales taxes that many have dodged, even though state law requires reporting purchases to the state Department of Revenue Services.It will lead to a $50 million commitment to build a new Amazon distribution facility near a major highway.

During a morning news conference in the Capitol, Malloy and DRS Commissioner Kevin B. Sullivan said that the agreement with Amazon would end a possibly expensive lawsuit over the collection of past sales taxes, while allowing Connecticut retailers to finally compete fairly with Amazon.

In recent years, the Internet megastore severed ties with state companies in order to avoid the sales-tax issue. "Ultimately we have reached an agreement by which legal claims will be solved and a very sizable investment in job creation will be made," Malloy said, adding that Amazon has re-established business with state companies with which it had previously cut off.

Sullivan said he has been in touch with Amazon on a continuing basis since the 2011 legislation that required Internet sellers with operations in the state to pay sales taxes.

"Amazon is the only major online retailer that is actively supporting the legislation that Gov. Malloy has just mentioned as so important to each of the states," Sullivan said, noting that although Amazon's facility won't be in operation for two years, it will start collecting state sales taxes in time for this holiday season.

Sullivan, in an interview Monday afternoon, said that Internet retailers generate about 40 percent of their annual income in November and December, so it was important to get the agreement to take effect at the start of the holiday sales season.

"Amazon is certainly the largest of the retailers," Sullivan said. "There are many, many, many more." He added that Amazon has also agreed to start paying Massachusetts sales taxes starting Nov. 1.

He said there is no good estimate on the full extent of Internet sales completed by Connecticut consumers, or how much tax revenue might be at stake, because the companies are not registered to pay taxes.

"We are aware of a large number of entities which conduct business in a very similar if not exactly the same way as Amazon had been conducting business, so the question remains very open for those companies as to whether or not they have obligations in the state of Connecticut," Sullivan said during the news conference.

"This gives us the opportunity to go after whoever the next one is," Sullivan said of the state effort to get more online retailers to collect Connecticut taxes.

Malloy described the current percentage of sales taxes reported by consumers to be "very small, tiny, minuscule."

Paul Misener, vice president for global public policy at Amazon, said in a statement that the new jobs will be well-paying, with good benefits.

"We are delighted to make this announcement today and look forward to working with Gov. Malloy toward passage of the legislation now being considered by Congress that would finally resolve the sales tax issue, level the playing field for all retailers, protect states' rights and allow states to collect the revenue owed," Misener said.